Relaxation of exchange control for listed companies could put South Africa firmly at the forefront of investment powerhouses on the continent.
Johannesburg, Monday, 05 August 2013 – More often than not, when there seems to be uncertainty regarding the financial landscape of the country, investors often look to move funds offshore. Muneer Hassan, Senior Executive of Standards at the South African Institute of Chartered Accountants says that with the European economic crisis showing little sign of giving way, listed companies in South Africa may see their own home turf as ideal hubs for promoting investment into the region.
This is on the backdrop of the announcement that was made by the Minister of Finance, Pravin Gordhan in his 2012 budget speech, when he said that companies listed on the Johannesburg Stock Exchange may designate one South African resident company in their group as a treasury company, which will fall outside of exchange control restrictions.
Hassan believes that this statement brings with it a major incentive for companies to manage their offshore as well as African operations from South Africa instead of running these from a treasury company based outside of South Africa. He says that this relaxation could benefit both the country and the Southern African region as the country could become a financial and investment hub as a result of the change.
Based on Minister Gordhan’s pronouncement, the relaxation means that a group may transfer up to R750million into their designated treasury company per annum without any formal approval and this is over and above the annual “regular” allowance of R500million per annum given to companies who want to invest abroad.
“What this means is that potentially R1.25billion could be transferred to this treasury company annually, R750million of this without any formal approval whilst the R500million would be transferred through application to an authorised dealer.” Explains Hassan, elaborating that this treasury company may then be used to invest into offshore and African investments with freedom to raise and transfer capital abroad and enjoy unrestricted cash pooling as well as remit locally generated income abroad.
Hassan advises that there are two major requirements for the treasury company to be legal and these are that the subsidiary must register with the Financial Surveillance Department at the South African Reserve Bank and the subsidiary must be a tax resident in South Africa
He has however noted that although legislation already allows for the establishment of a headquarter company for tax purposes, these companies are treated as non-residents for exchange control. As such investors currently require reserve bank approval for any investments of more than R500million into this headquarter company so it is therefore less onerous to establish a treasury company whereby one would not be calling the reserve bank until the substantial figure of R1.25billion is exceeded.
This is seen by Hassan as a major step forward in cutting through red tape and easing the flow of investments both in and out of the country, putting South Africa firmly at the forefront of investment powerhouses on the continent.
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